Golden Bear

http://www.nytimes.com/2012/11/21/op...fFhRJLRv2zi8Nw


November 20, 2012

A Free Market in the Sky
By CLIFFORD WINSTON
Washington

AS the holiday season approaches, the major airlines are signaling to some passengers to take a hike. At least that’s what travelers might infer from the smaller number of flights being scheduled at many of the nation’s airports.

Between 2007 and 2012, airlines cut the number of domestic passenger flights by 14 percent, according to the Department of Transportation — with the biggest drops occurring at midsize and smaller regional airports. The five heartland hubs of Cincinnati, Cleveland, Memphis, Pittsburgh and St. Louis have lost a stunning 40 percent of their scheduled flights.

The reason is simple: airlines have decided that the best way to earn a healthy return on their investment is to maintain tight discipline on capacity. That’s a fancy way of saying they want their planes to fly as full as sardine cans. And the way they’ve been accomplishing this is by concentrating service on the big domestic and international markets and by cutting flights in smaller, less traveled ones.

That’s smart business, of course. Why expend the same dollars on jet fuel, pilots and Sun Chips on a flight that’s likely to leave half-empty from Memphis when you can trim the number of scheduled departures from the same airport and really pack them in on each flight?

But this, of course, leaves Aunt Sally in Sarasota, Fla., with fewer options to visit family during the holidays; it leaves millions of us with longer boarding and exiting delays on our planes — and, yes, it helps drive up fare prices, too. It’s that old rule of supply and demand. Travelocity, an online booking site, has found airline ticket prices for this pre-Thanksgiving period to be 10 percent higher on average than last year.

Unfortunately for travelers, this situation is unlikely to change anytime soon. With five airlines now serving 85 percent of the domestic market — four, if American Airlines and US Airways merge, as industry analysts expect — the major carriers are worrying less about the one factor that could disrupt their cozy, cram-’em-in strategy: competition.

That is, unless policy makers do what they should have done a long time ago and allow foreign airlines, including discount carriers like Ryanair and global players like Qantas and British Airways, to serve domestic routes in the United States. Why, after all, should an industry that has ingeniously used free-market principles to squeeze the most revenue out of each middle seat be protected from competing in a real free market?

As things stand now, the United States allows foreign airlines to serve its major cities as part of international agreements — conventions that have been around for decades. Foreign airlines have never posed a threat to national security or to the safety of air travelers; there’s no indication that such carriers have resisted American security measures in the past or any reason to think they’d violate any protocols required for domestic routes either.

Competition from foreign airlines would put downward pressure on wages, something that union workers may object to. But by reducing fares and expanding service, it would also increase the demand for air travel and related services — thus, presumably, creating additional jobs during a time of persistently high unemployment.

Airline travelers, in fact, have already benefited significantly from increased competition among international carriers. Beginning with a successful agreement with the Netherlands in 1992, the United States has pressed for liberal free-trade pacts, called “open skies” agreements, with several nations.

In collaboration with Jia Yan of Washington State University, I have estimated that travelers have gained at least $5 billion annually as a result of lower international fares and additional flights generated by open skies agreements.

By allowing foreign airlines to serve American domestic markets, the process of creating a truly free market in airline services here would be complete and, as in the case of international markets, would provide travelers the benefit of more flight choices and lower fares.

Naturally, domestic airlines are likely to oppose such a policy. But they should realize that their current strategy to maximize profits — reducing flights and raising fares — runs the danger of alienating the American flying public and spawning new regulation.

One possible solution is to take a half-step toward opening up domestic markets and allow foreign carriers to serve any midsize and regional airport in the United States that has lost service in the past few years. New entrants would be able to integrate those markets with their international routes, something that could put many smaller American cities on the global business map.

Soon, Aunt Sally might enjoy the service on Singapore Airlines en route to Cincinnati. It’s a short flight from Sarasota — but the hot face towels are a dream.

Clifford Winston is a senior fellow in economic studies at the Brookings Institution and author of “Last Exit: Privatization and Deregulation of the U.S. Transportation System.”

Molon Labe

This one is a most interesting "RED HERRING" in that pilot wages are at a record low and so the threat of lower foreign pilot pay therefore cost is at the most inappropriate threat level...better said there os no cost advantage to using forein pilots//they pay them better than they pay us so tell this guy from the NY times to go get ******ed.....

freightdawg

Legalize Cabotage?? Talk about unintended consequences...

rotorhead1026

Most Asian carriers have a full plate right now with expansion in their own markets; it would seem there's little to be gained at this point by operating over here. Some limited "extensions" between major hubs might make some sense, but fares here are so low I just don't see the appeal.

Right now European carriers' cost structure would appear to be too high to compete here. Eventually such an operation would put downward pressure on pay/benefits. It's already happening at some places (RyanAir). There's no RLA over there to slow down labor actions, either.

A carrier could "cherry pick" extremely profitable routes, assuming that there are still some of these. Again,this would lead to downward fare pressure, rendering same less profitable.

A danger would be permitting, say, Lufthansa to set up a surrogate (US incorporated, foreign owned) operation using US employees, who have repeatedly demonstrated that they will work for peanuts (don't be insulted, boys and girls, I'm one of 'em ). The cost structure would be more competitive. Overall, though, I don't know why anybody would want to compete in this market on a large scale. It would take a great deal of diligent study, and as "our guys" have demonstrated you might still screw it up. It certainly wouldn't be the low fare panacea this this NYT idiot thinks it will be.

Here's my favorite:

"One possible solution is to take a half-step toward opening up domestic markets and allow foreign carriers to serve any midsize and regional airport in the United States that has lost service in the past few years. New entrants would be able to integrate those markets with their international routes, something that could put many smaller American cities on the global business map".

Yessir, Air France, I'm sure, is poised to exploit that underserved CDG-ERI market.

(ERI is just a convenient example of a small market. It's a nice place, actually).

Golden Bear

The whole piece just goes to show how far the discussion has moved to the right and how labor is viewed solely as a problem to be dealt with and overcome. Maybe they're going for a whole "fair and balanced" thing by giving time to opposing viewpoints, but this a piece that would be much more at home in the WSJournal.

If this is indeed the viewpoint of the new left media, labor in general, and airline pilots specifically, are screwed in the PR world. Look how the whole Twinkie bankruptcy played out recently: unionized labor would not agree to necessary cuts, so the whole company was shut down and EVERYONE lost their jobs. No real discussion of mismanagement, macro-economic factors, etc. Just "unions are bad and kill jobs".

I hope ALPA, APA, and SWAPA are all over this in tomorrow's Letters to the Editor.

galaxy flyer

Brookings is known as a Democrat-leaning thnk tank, not right-wing at all. The Times has had a long standing blind eye toward unions, they'd had some nasty strikes over the years. The Sulzbergers don't like unions who disturb their view of how the world should work. I've worked there, too.

GF

tomgoodman

The NY Times wasn't quite as happy about competition in its own business from Australian-born Rupert Murdoch. That's different, you see.

Rupert Murdoch’s War On The New York Times | Vanity Fair

swimheiss

Would Singapore Airlines really give Aunt Sally a hot towel, first-class in-flight entertainment, cognac and breadsticks on a 2% full 777 from Sarasota to Cincinnati? Of course if they did, she'd expect Sully to be flying her plane "just-in-case" because $69 is a lot to pay for the privilege of getting to your destination 500% safer, cheaper, and faster than driving the same route in a reasonably priced economy car.....

Phantom Flyer

Don't count on ALPA to do anything. There may be an article in the ALPA magazine in six months but this issue isn't high on the list in Herndon.

Sorry but true.

G'Luck Mate

bozobigtop

Open Skies will always be a bargaining chip for the powers that be; better to separate labor from his or her job as oppose to investors/shareholders from his or her money.